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There was a time when BlackBerry ( BBRY ) was the king of smartphones, until Apple ( AAPL ) rattled the world by introducing the iPhone in 2007. Users of the BlackBerry phone were once known as “crackberry” addicts for their intense loyalty. But sales of the once-iconic device have slid down a continuous slope since the iPhone’s debut. That was followed by the Android operating system by Alphabet ( GOOGL ), adopted by a plethora of smartphones that flood the market. BlackBerry’s smartphone market share has dwindled to about 1% — and it’s about time for the company to just get out of that market, says Richard Windsor, an analyst at Edison Investment Research, in a research note Monday. When BlackBerry ruled the smartphone market, beginning around 2003, its stock took off, peaking at 148 in June 2008. It now trades near 7. To salvage its business, BlackBerry has focused on secure mobile software and services, but it still makes smartphones. In its fiscal-fourth-quarter earnings report, issued Friday, BlackBerry said total software and service revenue more than doubled in fiscal 2016 to $527 million. The software business exceeded expectations, helping BlackBerry beat Q4 earnings estimates for the period ended Feb. 29, but its revenue fell short, dragged down by slower-than-expected hardware sales. Shares plummeted 7.5% on Friday, and BlackBerry stock fell 2.8%, to 7.27, in the stock market today . “Software was marred by the company’s insistence on staying in the hardware business,” wrote Windsor. “The better-than-expected profitability was almost entirely due to software being a larger part of the mix than expected.” BlackBerry is fighting for a comeback in smartphones with its Leap and Priv handsets. Priv, BlackBerry’s first Android-based device, was released in November. BlackBerry sold 600,000 smartphones in Q4, down from 700,000 in Q3. (By comparison, Apple sold 74.78 million iPhones in Q4). Contract Talks With Verizon Slowed BlackBerry BlackBerry CEO John Chen blamed the drop on longer-than-expected contract negotiations with certain major carriers, including Verizon ( VZ ). Verizon didn’t begin carrying the Priv until March. “We suspect that these negotiations are taking longer than expected because Verizon and the other carriers have realized that the niche that BlackBerry is targeting is far smaller than BlackBerry thinks,” Windsor wrote. “We think that the main problem with the Priv is that essentially all smartphone users no longer care about having a physical keyboard, and those that do are a tiny minority in the financial and government sectors.” Chen, on the company’s earnings conference call, said BlackBerry would exit smartphones if it cannot make money on the device and if it becomes a burden to its turnaround effort. There’s still time, he says. “We are still on track, with our plans calling for achieving device business profitability sometime in this fiscal year,” Chen said. “Our value proposition to offer the most secure Android smartphone for the enterprise is actually quite strong.” Windsor said BlackBerry’s response to poor sales of the Priv is to have a go at producing a mid-range Alphabet Android device in the hope that the lower price spurs some sales. “While this might result in slightly better volumes, it will not produce a decent level of profitability. This is because Android is a brutally competitive commodity business,” he said. Chen has done a good job with the software business, but hardware is not his strength, Windsor wrote. “We think that the fact that he is not a veteran of the handset industry is a factor in BlackBerry choosing to carry on when it should really cease,” Windsor said. “Although, this will be painful, we think it is the best course of action for this company as resources that are being wasted on developing hardware can then be more profitably employed.” Scalper1 News
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